Schlumberger Profit Falls on Lower North American Prices

Schlumberger Ltd., the world’s largest oilfield-services provider, said first-quarter profit fell 3.2 percent as reduced onshore drilling for natural gas led to lower hydraulic fracturing prices in North America.

Net income declined to $1.26 billion, or 94 cents a share, from $1.3 billion, or 97 cents, a year earlier, Houston- and Paris-based Schlumberger said in a statement today. Excluding one-time items, the company exceeded the 98-cent average of 32 analysts’ estimates compiled by Bloomberg. Sales climbed 7.6 percent to $10.7 billion.

“The outlook for North America remains uncertain, with lower-than-expected rig activity and continuing pricing weakness,” Chief Executive Officer Paal Kibsgaard said in the statement. “While cold weather and flattening natural gas production has resulted in significant storage withdrawals, this has yet to result in any change in dry gas drilling activity.”

Hydraulic fracturing, or fracking, uses millions of gallons of water mixed with sand and chemicals to blast underground rock and free trapped hydrocarbons. Prices charged for U.S. fracking services are expected to fall 6 percent this year after dropping 15 percent in 2012, according to PacWest Consulting Partners LLC, a Houston-based industry adviser.

Fracking Demand

Demand for fracking equipment has declined as gas prices fell to a 10-year low last year and producers halted some production and drilling. Fracking equipment in the first quarter, measured by the amount of horsepower available, was estimated to exceed demand by 32 percent. About 15.4 million horsepower was competing to meet demand for 11.7 million, the consultant said.

“This past year has been more challenging for the oilfield service subsector than the market originally anticipated,” Brian Youngberg, an analyst at Edward Jones in St. Louis who rates the shares a buy and owns none, said in a phone interview before the results were announced. “I really expected to see better earnings improvement. That’s been delayed now until at least later this year into 2014.”

Quarterly revenue was boosted by a 13 percent increase in international sales. Schlumberger generates about two-thirds of sales outside of North America, the highest ratio among the largest service providers, including Halliburton Co. and Baker Hughes Inc.

Venezuelan Collections

Baker Hughes today reported a 30 percent decline in net income for the first quarter, dropping to $267 million, or 60 cents a share, from $379 million, or 86 cents, a year earlier. The results included a $23 million loss from the devaluation of Venezuela’s currency in February.

Unlike Schlumberger, Baker Hughes sees improvement in North America.

“Following five consecutive quarters of declines in the U.S. rig count, we are now forecasting a modest increase for the remainder of the year,” CEO Martin Craighead said in a statement.

Schlumberger reported a $92 million pretax cost from Venezuela’s currency devaluation. The company said last month collections in Venezuela had improved and all revenue from first-quarter work would be recognized. The March 31 statement came two weeks after Schlumberger said it would temporarily cut activity in the country due to unpaid bills.

Schlumberger, which has 32 buy, one sell and six hold recommendations from analysts, declined 1.5 percent to $69.95 at the close in New York. Baker Hughes fell 2.3 percent to $43.58.

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